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While you were sleeping: Fed, China concerns

Tuesday 13th March 2012

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The focus has shifted to what, if any, the US central bank's next easing move could be as the latest trade figures from China have added to concerns about the pace of global economic growth.

Investors are focused on tomorrow's statement from the Federal Open Market Committee to see whether the US central bank might clarify where it stands on easing measures. So far, policy makers have said they plan to keep interest rates low at least through late 2014.

Better-than-expected jobs growth, as indicated by the latest non-farm payrolls report on Friday, might have reduced the likelihood of the need for further help, though the unemployment rate at 8.3 percent is still too high for the Fed's taste.

"People are somewhat weary ahead of tomorrow's FOMC meeting," Peter Jankovskis, co-chief investment officer at OakBrook Investments in Lisle, Illinois told Reuters. "Not that they expect any groundbreaking news out of it. It's just the normal caution ahead of a Fed meeting."

Also due tomorrow are American retail sales numbers for February, which could reinforce signs that the US economic recovery is gathering momentum.

As for China, the world’s second-largest economy last month had the biggest trade deficit in at least 22 years, January-February factory output rose by the least since 2009 and retail sales climbed at a slower pace than the median estimate of economists surveyed by Bloomberg News, government data showed March 9 and 10.

In early afternoon trading in New York, the Dow Jones Industrial Average rose 0.34 percent. The Standard & Poor's 500 Index and the Nasdaq Composite Index slipped, edging lower by 0.06 percent and 0.08 percent respectively.

Signs of weakness in the China also weighed on commodity prices. Prices of oil and gold weakened, last 1.1 percent and 0.8 percent lower respectively.

Europe's Stoxx 600 Index closed with a 0.2 percent decline for the day.

As EU finance ministers prepared to give final approval for the second financial rescue package for Greece, it's clear that there's plenty of concern about Portugal.

The yield on Portugal's 10-year bonds is at 13.71 percent. Two-year rates of 12.48 percent have doubled in the past year, though they are down from more than 21 percent at the end of January, according to Bloomberg.

“The market doesn’t believe that Greece is a unique case,” Matteo Regesta, a senior fixed-income strategist at BNP Paribas SA in London, told Bloomberg. “Portugal is very similar. It would be easy to try to placate and distract the attention of the bond vigilantes, if only policy makers would immediately close the funding gap, pre-empting any further pressure on the periphery. I’m afraid I don’t think that’s going to happen.”

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